Warning: Cost of shipping going up in 2013

Monday, November 19, 2012

By Chris Gillis

All indications in the market are that freight transportation costs, both international and domestic, are on the rise for American shippers in 2013.
These increases — some steeper than others and varying by transport mode — are unwelcome news for many shippers who have already roughed it through several difficult years since the low point of the recession and with the economy still on a slow roll.
For domestic moves, fuel costs, which have appeared to stabilize at a high level, will keep freight transportation bills high for shippers. There is also the threat of looming capacity constraints in traffic-intense markets, such as the New York/New Jersey area which was hobbled by a devastating autumn storm and in need of rebuilding. Who knows what the winter has in store yet for this region?
Noel Perry, senior consultant for the transportation analyst FTR Associates, said the recovery effort from Sandy will likely be a boon to trucking and intermodal companies that participate in the recovery efforts. He noted the peak of the recovery may actually come between March and May, when temperatures are warmer, though the more moderate climate along the coast may mean some of the benefit to the trucking and rail industries comes sooner.
“Trucking and rail revenues will benefit from Sandy,” Perry said. “You’re not only doing extra work, but you’re doing rush work and out of network work, and people are willing to pay more.”
Not to mention that if there’s a national bump in commerce, trucking capacity constraints could become exacerbated by the need for trucking companies to find qualified drivers to fill the seats of their cabs.
Ocean freight rates to and from North America will continue to rise as liner carriers make every attempt to boost their bottom lines. For example, the index spot rate to the U.S. West Coast (from mid-November 2011 to mid-November 2012) rose 58 percent and about 26 percent to the U.S. East Coast. Numerous general rate increases have been announced by liner carriers in recent months to compensate for the rising cost of bunker fuel and other ancillaries.
“There are so many rate increases going on, we have to follow our way, which is pushing rates up further. But if markets allow, yes, of course, we will take further increases,” Maersk Group Chief Executive Officer Nils Andersen, told financial analysts when announcing the liner carrier’s third quarter results for 2012 on Nov. 9.
The liner carriers are also putting the squeeze on shippers with specialty equipment requirements to transport their freight. Starting with Maersk and followed by others, the rate for a refrigerated 40-foot container will increase by about $1,500, starting Jan. 1.
In addition, struggling airlines will further tighten capacity in 2013, even parking some freighters for a period, to get a grip on cargo revenue losses, which means shippers that rely on air transport will pay more for the remaining space available to them.
Next year’s rate escalation will surely test the wherewithal of even the most experienced logistics managers. But those who succeed in holding the line, or even shaving costs here and there off their transportation bill, will prove their value to their companies and thus should be recognized.